Turning a New Leaf with Apple (AAPL)

Trade the AAPL turnaround with stock or calls

By Trader X | May 31, 2013, 4:04 am EST

OK, in February I wrote a bearish article on Apple (AAPL) about the opportunity that we saw to profit from its likely move to $400. Of course, there were a number of people that told me I was wrong and that AAPL shares were a buy at $440! Fast forward to mid-April and shares of the beaten fruit finally hit our target of $400 at which point they found support, leading to a rally back to $440 and higher. So now, sitting near the same point that I traded AAPL as a short for a 10% win on the stock, or a 100% return on the option recommended in February, we’re trading the stock for a move to the $500 level. Why the turnaround?

Over the last six months, AAPL shares have gone from market darling to market orphan as investors and followers appear to have moved away from the notion that the company is the innovation leader. Nowadays, we’re hearing more about Samsung and Google (GOOG) than Apple, a good thing, as it suggests that the market’s expectations for AAPL have dropped, making it easier for the company to attract investors again.

Click to Enlarge From a technical perspective, the stock is now trading within its strongest technical trend since October 2012 as the stock recently saw a bullish crossover of its short- and intermediate-term trendlines (20- and 50-day). Our quantitative back-testing suggests that the shares are more than twice as likely to move higher on a daily basis after this pattern has occurred. Additionally, AAPL shares have spent the last week consolidating with strength as the S&P 500 has seen selling pressure. This suggests that AAPL shares are attracting buyers during the market’s relative weakness.

For now, the chart suggests that AAPL will meet with some resistance at the $460 level, but advance to $500 over the next few months. We’re making a play on this move by recommending that traders either purchase AAPL shares at current prices or the AAPL August 450 calls currently trading at $24. A move to our target will result in similar results to our February bearish call: an 11% gain for shareholders and roughly 100% return on the options based on intrinsic value.

Trader X frequents national investment conferences and has developed several market analysis tools that harness the powerful combination of behavioral analysis and technical analysis. He has decades of experience as a registered broker.

But we can’t reveal the source of this trade. Trader X’s privileged insight means he needs to be careful. He must act anonymously. While his identity can’t be known, Trader X will pull back the curtain to the trades he’s discovered.

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